`Shareholders` Funds`?

Frequently Asked Questions
Frequently Asked Questions
on
Schedule VI
CA. (Dr.) G.S. Grewal
1
Frequently Asked Questions
Shareholders’ Funds
Q. How is Share Capital shown under Schedule VI?
A.
Share Capital is shown as a single amount
against Share Capital on the face of the
Balance Sheet.
The details are given with respect to each class
of shares in the Notes to Accounts on Share
Capital classifying them into:
‘Shares Subscribed and Fully Paid up’, and
‘Shares Subscribed but not Fully paid up’
CA. (Dr.) G.S. Grewal
2
Frequently Asked Questions
Shareholders’ Funds
Q. How is the requirement to show ‘Nominal
Value’ and ‘Called up Amount’ of the share
fulfilled?
A. It is shown as follows:
Authorised Capital:
1,00,000 Equity Shares of ₹ 10 each
Issued Capital:
90,000 Equity Shares of ₹ 10 each
Subscribed Capital:
Subscribed But Not Fully Paid up
80,000 Equity Shares of ₹ 10 each; ₹ 7 Called
up
CA. (Dr.) G.S. Grewal
3
Frequently Asked Questions
Shareholders’ Funds
Q.
When are the shares classified as ‘Subscribed
and Fully Paid Up?
A.
Shares are classified as ‘Subscribed and Fully
Paid Up’ when the entire nominal i.e., face
value of the share is called up and is also
received by the company.
CA. (Dr.) G.S. Grewal
4
Frequently Asked Questions
Shareholders’ Funds
Q. When are shares classified as ‘Subscribed But
Not Fully Paid Up?
A.
a)
b)
Shares are classified as ‘Subscribed But Not
Fully Paid Up’ under two situations:
when the company has called up the entire
nominal or face value of the share but has not
received it. The shares on which the amount
is not received are classified as ‘Subscribed
But Not Fully Paid Up’; and
when the company has not called the entire
nominal or face value of the share.
CA. (Dr.) G.S. Grewal
5
Frequently Asked Questions
Shareholders’ Funds
Q.
How is Calls – in – arrears shown in the Balance
Sheet?
A.
It is shown in the Notes to Accounts as deduction
from the amount under ‘Shares Subscribed But
Not Fully Paid Up’ as follows:
Notes to Accounts: Share Capital
Authorised Capital:
Issued Capital:
Subscribed Capital:
Subscribed But Not Fully Paid up:
5,000 Equity Shares of ₹ 10 each 50,000
Less: Calls – in – arrears
10,000 40,000
CA. (Dr.) G.S. Grewal
6
Frequently Asked Questions
Shareholders’ Funds
Q. A company has called ₹ 8 against its nominal
or face value of the share. The company
received the called up amount. How will it be
classified?
A. It will be classified as ‘Subscribed But Not Fully
Paid up’ because the accounts are maintained for
the company. From the company’s point of view,
shares are not fully paid up.
CA. (Dr.) G.S. Grewal
7
Frequently Asked Questions
Shareholders’ Funds
Q. Can a company has capital under ‘Subscribed
and Fully Paid Up’ and also ‘Subscribed But
Not Fully Paid Up’?
A. Yes, It is possible under following situations:
(i) when a company has issued only one class of
shares and has called the entire nominal or
face value but some of the shareholders have
not paid the amount. Shares on which amount
is not received are classified as ‘Subscribed
But Not Fully Paid up’
CA. (Dr.) G.S. Grewal
8
Frequently Asked Questions
Shareholders’ Funds
(ii)
When a company has two or more classes of
shares, one class of shares may be fully paid
up and thus, will be classified as ‘Subscribed
and Fully Paid’
while
Another may not be fully called up or where
called up may not fully paid up. In both the
cases it be classified as ‘Subscribed But Not
Fully Paid’.
CA. (Dr.) G.S. Grewal
9
Frequently Asked Questions
Shareholders’ Funds
Q. A company issued 50,000 Equity Shares of ₹ 10 each and called
up ₹ 10 per share. It did not receive final call of ₹ 2 on 2,500
shares. How will you show it in the Balance Sheet?
A. It will be shownas follows:
Notes to Accounts: Share Capital
Authorised Capital;
Issued Capital
Subscribed Capital
Subscribed and Fully Paid up
47,500 Equity Shares of ₹ 10 each
4,75,000
Subscribed But Not Fully Paid up
2,500 Equity Shares of ₹ 10 each; ₹ 10 Called
Less: Calls–in–arrears (2,500 × ₹ 2 )
25,000
5,000
20,000
4,95,000
CA. (Dr.) G.S. Grewal
10
Frequently Asked Questions
Shareholders’ Funds – Reserves and Surplus
Q.
A.
Can a Company have reserves other than
those specified in Schedule VI?
Yes, a company can have reserves other than
those specified in Schedule VI. Schedule VI of
the Companies Act is made flexible by including
an entry Any Other Reserves (to specify the
nature and purpose of each reserve).
Examples: Investment Fluctuation Reserve,
Workmen Compensation Reserve, Tax
Reserve, Subsidy Reserve, etc.
CA. (Dr.) G.S. Grewal
11
Frequently Asked Questions
Shareholders’ Funds – Reserves and Surplus
Q.
A.
Is there a difference between Statement of
Profit and Loss and Balance in Statement of
Profit and Loss?
Yes.
Statement of Profit and Loss is a statement
from which profit earned or loss incurred
during the year is known.
Balance in Statement of Profit and Loss is a
reserve representing balance in the reserve. It
includes opening Balance and current year’s
profit or loss.
CA. (Dr.) G.S. Grewal
12
Frequently Asked Questions
Shareholders’ Funds – Reserves and Surplus
Q.
A.
What is the journal entry when amount is
appropriated from Balance in Statement
of Profit and Loss (say) towards DRR?
Journal Entry passed is:
Balance in Statement of Profit & Loss A/c
To DRR
(Being the amount transferred to DRR)
CA. (Dr.) G.S. Grewal
…Dr.
13
Frequently Asked Questions
Shareholders’ Funds – Reserves and Surplus
Q.
A.
What entry is passed when Preliminary
Expenses are written off?
It may be written off
(i) from Securities Premium Reserve; or
(ii) from Statement of Profit and Loss.
When it is written off from Securities Premium
Reserve the journal entry is:
Securities Premium Reserve A/c
…Dr.
To Preliminary Expenses A/c
(Being the amount of Preliminary Expenses
written off from Securities Premium Reserve)
CA. (Dr.) G.S. Grewal
14
Frequently Asked Questions
Shareholders’ Funds – Reserves and Surplus
When it is written off from Statement of Profit
and Loss, the journal entry is:
Statement of Profit and Loss
…Dr.
To Preliminary Expenses A/c
(Being the Preliminary Expenses Account
closed by transfer to Statement of
Profit and Loss)
CA. (Dr.) G.S. Grewal
15
Frequently Asked Questions
Shareholders’ Funds – Reserves and Surplus
Q.
What entry is passed when Discount on Issue
of Shares, Discount on Issue of Debentures is
written off?
A.
They may be written off
(i) from Securities Premium Reserve; or
(ii) from Statement of Profit and Loss.
If it is written off from Securities Premium Reserve
the journal entry passed is:
Securities Premium Reserve A/c
…Dr.
To Discount on Issue of Shares A/c
or Loss on Issue of Debentures A/c
(Being the amount of Preliminary Expenses written off)
CA. (Dr.) G.S. Grewal
16
Frequently Asked Questions
Shareholders’ Funds – Reserves and Surplus
If it is written off from Statement of Profit and Loss,
it is to be written off in more than one accounting
period.
Let us take an example of Loss on Issue of
Debentures of (say) ₹ 1,00,000 to be written off in 10
years. Thus, the first entry will be:
Loss on Issue of Debentures A/c …Dr. 1,00,000
To …. % Debentures A/c
1,00,000
(Being the Loss on Issue of Debentures)
CA. (Dr.) G.S. Grewal
17
Frequently Asked Questions
Shareholders’ Funds – Reserves and Surplus
Second entry will be to write off 1/10th of Loss on Issue of
Debentures to Statement of Profit and Loss. The journal
entry will be:
Statement of Profit and Loss
… Dr. 10,000
To Loss on Issue of Debentures A/c
10,000
(Being 1/10th of Loss on Issue of
Debentures written off)
Balance ₹ 90,000 will be shown in the Balance Sheet. Next
year when again a portion is written off:
Statement of Profit and Loss
… Dr. 10,000
To Loss on Issue of Debentures A/c
10,000
(Being 1/10th of Loss on Issue of
Debentures written off)
Balance ₹ 80,000 will be shown in the Balance Sheet.
CA. (Dr.) G.S. Grewal
18
Frequently Asked Questions
Shareholders’ Funds – Share Warrants
Q.
A.
What are ‘Share Warrants’?
The term ‘Share Warrants’ is defined in
Companies (Accounting Standards) Rules,
2006 as follows:
“Share Warrants are financial instruments
which gives the holder the right to acquire
equity shares”.
CA. (Dr.) G.S. Grewal
19
Frequently Asked Questions
Shareholders’ Funds – Share Warrants
Q.
A.
Why is ‘Money Received against Share
Warrants’ classified as ‘Shareholders’
Funds’?
Share Warrants effectively represent the
amount which would ultimately become part of
equity share capital when converted into
equity shares. Till the time they are converted
into shares these are not shown as share
capital but as a separate line item i.e., ‘Amount
received against Share Warrants’.
CA. (Dr.) G.S. Grewal
20
Frequently Asked Questions
Share Application Money Pending Allotment
Q.
A.
What amount is shown against ‘Share
Application Money Pending Allotment’?
Out of the total Share Application Money
received only that much amount is shown
against ‘Share Application Money Pending
Allotment’ against which shares will be allotted
by the company.
Money received by the company as share
Application Money against which shares will not
be allotted i.e., amount will be refunded is
shown as Other Current Liability.
CA. (Dr.) G.S. Grewal
21
Frequently Asked Questions
Share Application Money Pending Allotment
Q.
A.
Share Application Money Pending Allotment
is neither been grouped as Shareholders’
Funds nor as Non - current Liability. What is
the nature of this line item?
In essence, Share Application Money Pending
Allotment is in the nature of Equity because the
amount shown against it is the amount which
will definitely be converted into Share Capital.
It is shown to highlight it on the face of Balance
Sheet.
CA. (Dr.) G.S. Grewal
22
Frequently Asked Questions
Share Application Money Pending Allotment
Q.
Why should the amount of ‘Share Application
Money Pending Allotment’ included in
Shareholders’ Funds and Capital Employed
for
accounting
ratios
when
Liabilities
Approach is followed?
A.
It is the amount received by a company against
which the company will definitely allot shares. It is
shown as a separate line item because the date of
Balance Sheet has fallen in between the date
when amount was received and the date when
shares are allotted.
Therefore, it is included in Shareholders’ Funds
and Capital Employed.
CA. (Dr.) G.S. Grewal
23
Frequently Asked Questions
Debentures Issued as Collateral Security
Q.
A.
How are Debentures Issued as Collateral
Security shown in the Balance Sheet, if
entry is not passed?
It is shown in the Notes to Accounts for Loan
secured by the debentures by way of a note as
follows:
Long – term Borrowings
Term Loan from State Bank of India
(The above loan is collaterally secured by issue of 12,000, 15%
Debentures of ₹ 100 each)
CA. (Dr.) G.S. Grewal
₹ 10,00,000
24
Frequently Asked Questions
Debentures Issued as Collateral Security
Q.
A.
How are Debentures Issued as Collateral
Security shown in the Balance Sheet, if
entry is passed?
It is shown in the Notes to Accounts for Loan
secured by the debentures as follows:
Particulars
Long – term Borrowings
Term Loan from State Bank of India
Debentures
15,000, 15% Debentures of ₹ 100 each
Less: Debenture Suspense
CA. (Dr.) G.S. Grewal
₹
₹
10,00,000
15,00,000
15,00,000
0
10,00,000
25
Frequently Asked Questions
Long – term Borrowings
Q.
A.
On what basis borrowings are classified as
Long – term Borrowings?
Borrowings which are payable after 12 months
of the date of Balance Sheet or after the period
of Operating Cycle are classified as Long –
term Borrowings.
CA. (Dr.) G.S. Grewal
26
Frequently Asked Questions
Long – term Borrowings
Q.
A.
Is part of Long – term Borrowings due for
payment within 12 months or the period of
Operating Cycle shown as Short – term
Borrowings under Current Liability?
Long – term Borrowings which becomes due for
payment within 12 months of the date of
Balance Sheet or within the period of Operating
Cycle are shown as Current Liability.
The amount is not shown as Short – term
Borrowings but under Other Current Liabilities
as ‘Current Maturities of Long – term Debts’.
CA. (Dr.) G.S. Grewal
27
Frequently Asked Questions
Long – term Borrowings
Q.
A.
What does Trade Investments mean?
Trade Investment is not defined in the Act or
Accounting Standards or New Schedule VI.
It can be understood as investment made by a
company in shares or debentures of another
company, to promote its trade or business.
CA. (Dr.) G.S. Grewal
28
Frequently Asked Questions
Deferred Tax Liabilities (Net)
Q.
A.
Why is Deferred Tax Liabilities (Net) included
in
Shareholders’
Funds
and
Capital
Employed for accounting ratios?
It is only a book entry and it comes into existence
by reducing the profit or increasing the loss.
In effect, it leads to decreased profit or increased
loss carried to the Balance Sheet. As a result
Shareholders' Funds and also Capital Employed
gets affected.
It therefore, is included in Shareholders' Funds
and Capital Employed when Liabilities Approach is
followed.
CA. (Dr.) G.S. Grewal
29
Frequently Asked Questions
Deferred Tax Assets (Net)
Q.
A.
Why is Deferred Tax Assets (Net) deducted
from Shareholders’ Funds and Capital
Employed for accounting ratios?
Following the same analogy as in the case of
Deferred Tax Liabilities (Net), in leads to
increased profit carried forward or decreased loss
carried forward. As a result Shareholders'
Funds and also Capital Employed gets affected.
It therefore, is deducted from Shareholders'
Funds and also Capital Employed when Liabilities
Approach is followed. It is not considered when
Assets Approach is followed.
CA. (Dr.) G.S. Grewal
30
Frequently Asked Questions
Fictitious Assets
Q.
A.
What types of Fictitious Assets can exist
under the new Schedule VI?
Fictitious Assets that exists under the new
Schedule VI are:
a)
Share Issue Expenses;
b)
Discount on Issue of Shares;
c)
Premium Payable on Redemption of Shares;
d)
Discount on Issue of Debentures;
e)
Premium Payable on Redemption of
Debentures;
or
Loss on Issue of Debentures
CA. (Dr.) G.S. Grewal
31
Frequently Asked Questions
Fictitious Assets
Q.
A.
Is the accounting treatment of all fictitious
assets same?
No, the accounting is different for fictitious
assets relating to shares and those relating to
debentures.
CA. (Dr.) G.S. Grewal
32
Frequently Asked Questions
Fictitious Assets
Q.
A.
What is the accounting treatment of
fictitious assets related to shares?
Fictitious assets relating to shares i.e., Share
Issue expenses, Discount on Issue of shares
and Premium Payable on Redemption of
Shares can be written off either
(i) from Securities Premium Reserve; or
(ii) from the Statement of Profit and Loss in 3 to
5 years.
CA. (Dr.) G.S. Grewal
33
Frequently Asked Questions
Fictitious Assets
Q.
A.
What is the accounting treatment of
fictitious assets related to debentures?
Fictitious assets relating to debentures can be
written off either
(i) from Securities Premium Reserve; or
(ii) from the Statement of Profit and Loss during
the life of the debentures.
CA. (Dr.) G.S. Grewal
34
Frequently Asked Questions
Fictitious Assets
Q.
A.
A company has a balance in Securities
Premium Reserve but is not adequate to
write off fictitious assets completely.
Can fictitious assets be written off partly
from Securities Premium Reserve (say up to
the balance) and balance from Statement of
Profit and Loss?
Yes, it can be so written off.
CA. (Dr.) G.S. Grewal
35
Frequently Asked Questions
Fictitious Assets
Q.
A.
Is the amount of fictitious assets not yet
written off required to be shown as Non –
current Assets and Current Assets? If yes, how
is it shown?
Fictitious assets not yet written off i.e.,
Unamortised Fictitious Assets are shown in part as
Non – current Asset and in part as Current Asset.
The amount that will be written off after 12
months of the date of Balance Sheet or after the
period of Operating Cycle is shown as Non–
current Asset.
The amount that will be written off within 12 months
of the date of Balance Sheet is shown under Other
Current Asset.
CA. (Dr.) G.S. Grewal
36
Frequently Asked Questions
Current Assets
Q.
A.
What are Current Assets?
Current assets are those assets which fulfil any of
the following criteria:
a)
it is expected to be realised in, or is intended
for sale or consumption in, the company's
normal operating cycle; or
b)
it is held primarily for the purpose of being
traded; or
c)
it is expected to be realised within 12 months
after the reporting date; or
d)
it is cash and cash equivalents unless it is
restricted from being exchanged or used to
settle a liability for at least 12 months after
the reporting date.
CA. (Dr.) G.S. Grewal
37
Frequently Asked Questions
Current Liabilities
Q.
A.
What are Current Liabilities?
Current liabilities are those liabilities which fulfils
any of the following criteria:
a)
it is expected to be settled in company's
normal operating cycle; or
b)
it is held primarily for the purpose of being
traded; or
c)
it is due to be settled within 12 months after
the reporting date; or
d)
the company does not have an unconditional
right to defer settlement of the liability for at
least 12 months after the reporting date.
CA. (Dr.) G.S. Grewal
38
Frequently Asked Questions
Classification of Items in Schedule VI
Particulars
Main Head
Sub Head
Debit Balance of
Shareholders’ Funds
Statement of Profit and
Loss
Reserves and Surplus
Interest Accrued and
Due on Debentures
Current Liabilities
Other Current
Liabilities
Interest Accrued But
Not Due on
Debentures
Current Liabilities
Other Current
Liabilities
Computer Software
under Development
Non – current Assets
Fixed Assets –
Intangible Assets
Under Development
Capital Advances
Non – current Assets
Long – term Loans
and Advances
CA. (Dr.) G.S. Grewal
39
Frequently Asked Questions
Classification of Items in Schedule VI
Particulars
Main Head
Sub Head
Premium Payable on
Redemption of
Debentures
Non – current
Liabilities
Other Long – term
Liabilities
Premium Payable on
Redemption of Pref.
Shares in 10 Months
Current Liabilities
Other Current
Liabilities
Tax Reserve
Shareholders’ Funds
Reserves and Surplus
Mining Rights
Non – current Assets
Fixed Assets –
Intangible Assets
En-cashable
Employees Earned
Leave Payable on
Retirement
Non – current
Liabilities
Long – term Provisions
CA. (Dr.) G.S. Grewal
40
Frequently Asked Questions
Classification of Items in Schedule VI
Particulars
Main Head
Sub Head
Loose Tools
Current Assets
Inventories
Vehicles
Non - current Assets
Fixed Assets - Tangible
Calls in Advance
Current Liabilities
Other Current Liabilities
Interest on Calls – in – Current Liabilities
Advance
Other Current Liabilities
Stores and Spares
Current Assets
Inventories
Subsidy Reserve
Shareholders’ Funds
Reserves and Surplus
Computer Software
Non – current Assets
Fixed Assets –
Intangible
Proposed Dividend
Current Liabilities
Short – term Provisions
CA. (Dr.) G.S. Grewal
41
www.tsgrewal.co.in
Please be free to write to us on:
Dr. (CA.) G. S. Grewal: [email protected] ,
Shri R. K. Khosla: [email protected]
CA. (Dr.) G.S. Grewal
42